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TMI Blog1971 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed a further sum of Rs. 50,000 in connection with the second five year plan sponsored by the U. P. Government for the construction of a net work of roads in the State. These two contributions were made under a scheme known as Sugarcane Development Scheme under which one-third of such cost was to be met by the Central Government, one third by the State Government and the remaining one-third by the sugar factories and sugarcane growers. The assessee claimed that it was entitled to a deduction in respect of these two amounts under the provisions of section 10(2)(xv) of the Income-tax Act, 1922. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim of the assessee on the ground that the expenditure was of a capital nature and was not allowable under section 10(2)(xv) of the Act. The assessee then went up in second appeal before the Income-tax Appellate Tribunal. In the Tribunal, there was a difference of opinion between the two Members constituting the Bench. The Judicial Member observed that the amounts were paid by the assessee in pursuance of a development plan formulated by the State Government under which various sugar factories in the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n then the question that will still be whether such an expenditure is admissible. If no advantage accrued to the assessee then the expenditure could not be said to have been incurred for the benefit of the assessee or his asset. In such an event the expenditure would not be admissible because only such expenditure could be claimed as deduction which enures to the benefit of the assessee's trade. In other words, the Accountant Member was of opinion that if for some -reason it is held that the expenditure in question was not capital expenditure it would still not be admissible as a deduction as it was not a business expenditure. As a result of a difference of opinion between the two Members constituting the Bench, the matter was referred to the President of the Tribunal for his opinion. According to the President the two questions that arose for consideration were whether the expenditure in question was capital in nature and whether the same was laid out wholly and exclusively for the purposes of business. It was contended on behalf of the assessee that the contribution made by it towards the cost of repairs was actuated because of business expediency. When asked to explain as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto consideration. In the result he held that the assessee was not entitled to claim deduction in respect of the two sums of money. The case was then decided in accordance with the opinion of the third Member and the claim made by the assessee was disallowed. It will thus be seen that according to the opinion of the third Member and that of the Accountant Member, the claim of the assessee had to be disallowed on the ground that the expenditure was not laid out wholly and exclusively for the purposes of its business. . In order to bring the expenditure under section 10(2)(xv) the assessee has to satisfy two conditions, firstly, it has to establish that the expenditure was wholly and exclusively laid out for the purposes of the business, profession or vocation, and, secondly, that it was not in the nature of capital expenditure. We have, therefore, to see whether on the findings recorded by the Accountant and the third Member, the assessee has been able to establish that the expenditure in question was laid out wholly and exclusively for the purposes of its business. Learned counsel for the assessee contended that there can be no doubt that the expenditure incurred by it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, a capital asset comes into existence. It may be that the land on which the road in question was constructed did not belong to the assessee. But that circumstance did not alter the fact that the contribution made by the assessee brought assets of capital nature into existence. Such expenditure must, therefore, be classed as capital expenditure. The Tribunal was right in not treating the expenditure as permissible expenditure under section 10(2)(xv) of the Act. " Aforesaid observations made in the case of Dewan Sugar and General Mills were quoted with approval in a subsequent Division Bench case of Lakshmi Sugar and Oil Mills Ltd. v. Commissioner of Income-tax. Learned counsel for the assessee conceded that so far as the ratio underlying these two decisions is concerned it is completely applicable to the facts and circumstances of the present case. If these two cases lay down correct law, the question referred by the Tribunal will have to be answered against the assessee. He, however, contends that these two decisions require reconsideration. He contends that there are two cases decided by the Supreme Court which lay down the criteria for determining when an expenditure would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, in the instant case also, by incurring the expenditure no new asset was acquired by the assessee. Contribution for developing roads in the area was made so that cane may be transported to the factory in a more convenient manner and the assessee may be able to earn greater profits. On the basis of this decision he contends that the expenditure in the case before us should also be treated as revenue expenditure. Section 10(2)(xv) provides that the profits and gains of a business have to be computed after making an allowance for any expenditure (not being an allowance of the nature described in any of the sub-clauses (i) to (xiv) inclusive and not being in the nature of capital expenditure or personal expenditure of the assessee) laid out or expended wholly and exclusively for the purposes of such business, profession or vocation. According to this sub-section, it is only an expenditure which is laid out or expended wholly and exclusively for the purposes of such business that can be allowed as a deduction. An expenditure which is wholly and exclusively laid out for the purposes of business may either be of a capital nature or it may be otherwise. It is only the expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and other sugar factory owning units, there is nothing in the statement of the case or in any of the orders attached along with it to indicate any principle of ordinary commercial trading according to which such expenditures were to be incurred by the person like the assessee. Learned counsel for the assessee argued that the expenditure was commercially expedient, inasmuch as it was incurred to keep the district authorities and the State Government, without whose goodwill and co-operation it was not possible to run the business, on the right side. It may be mentioned that such an object has not been recognised for classifying the expenditure as revenue expenditure even in the case of Bombay Steam Navigation Co. v. Commissioner of Income-tax, on which reliance was placed by the learned counsel for the assessee. In that case one of the questions that arose for consideration was whether interest paid by the assessee on the unpaid purchase price for acquiring the business was a capital expenditure within the meaning of section 10(2)(xv) of the Act. One of the arguments raised on behalf of the assessee in support of the contention that payment of interest was revenue expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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